Wharton@Work

March 2024 | Strategy

AI: A Game-Changer for Business Model Transformation

In less than two years, artificial intelligence (AI) has evolved from a promising technology to a powerful tool that has already reshaped many aspects of modern life. From voice assistants like Siri and Alexa to GPS, from online shopping to medical diagnoses, it runs inconspicuously yet is becoming integral to our daily existence. It has also captured the attention of business leaders, with recent reports of generative AI (GenAI)’s ability to stimulate astounding increases in productivity.

But missing from the headlines is another powerful application that is enabling new sources of value, efficiency, and differentiation: innovating your business model. For those leaders who embrace GenAI, there is the potential for substantial gains. According to new research by McKinsey & Company, companies that embrace generative AI for business model innovation are 1.5 times more likely to experience considerable revenue growth compared to those that don’t.

“More and more businesses are finally paying attention,” says Wharton Dhirubhai Ambani Professor of Innovation and Entrepreneurship Serguei Netessine. “They are starting to see that there is more to AI than incredible gains in productivity and creativity. It’s not an exaggeration to say it is on par with the steam engine, electricity, and the internet, which touched — and disrupted — every aspect of our lives. Those that fail to see this about GenAI, that don’t innovate, that don’t change their business model based on this new technology, are greatly increasing their chances of becoming obsolete.”

Disruptive Potential

In his Wharton MBA Innovation class, Netessine requires the use of GenAI as students create startup companies. “It helps you be more innovative, generating more and better ideas, and it helps you better present those ideas with more compelling stories and better visuals. Why wouldn’t you want to use it?” he says.

Netessine also has participants use GenAI in the Executive Education program Business Model Innovation in the Age of AI, which he directs. In a “Teaming for Innovation with Humans and AI” session, Director of Wharton’s Mack Institute for Innovation Management Valery Yakubovich has small groups of participants collaborate with AI to come up with innovative business models.

“A significant part of the program has always been dedicated to data, to AI, to digital capabilities. But now we are just doubling down on it, spending even more time talking about what AI does, how it works, and how to build a business model on top of it or compete with someone who has a business model built on AI. The technology is simply too powerful and has such disruptive potential that it cannot be ignored,” says Netessine. “Because GenAI is a general-purpose technology, it will affect every part of your business model no matter your industry. What we see happening more and more is people who use GenAI are driving unprecedented levels of creativity, efficiency, and competitive advantage.”

Finding Applications

“Some applications are so obvious, and they so obviously pay for themselves, that there’s no good argument for not using them,” he continues. “Customer service is a great example. Most people have had the experience of asking a question to a chatbot. As soon as the question gets a little complicated, the chatbot gives you some bad options that make no sense, and you end up demanding a live person to talk to.”

“But now, we have applications like the one from Alltius.ai that allow you to upload every manual, YouTube video, website, and any other content with information about your products. GenAI can go through all of that content in seconds, and give a much better answer to a customer question than a human could. Alltius.ai has even reduced hallucinations [legitimate-sounding but incorrect answers] to almost zero. If it doesn't know the answer, it says, ‘Sorry, based on what I know, I cannot answer this question. Let me now connect you to a person.’ Using it is a no-brainer: you need fewer people answering phones and you get much, much higher customer service outcomes.”

Netessine stresses that while there are countless applications, finding them requires business leaders to audit their current business model and then think concurrently about business model innovation and applications of generative AI. “You don’t need to create something new. There is space for innovation by applying an existing GenAI tool to a specific business case.”

But there are also applications that require completely different training of the large language models (LLMs) that power AI. “We are going to see more and more technical people working on commercializing and building businesses based on LLMs. This could be done as a standalone company or it could be done within a large company,” Netessine says. Salesforce’s AI-powered Einstein platform is a prime example: the customer relationship management (CRM) software can now offer features such as predictive lead scoring and personalized recommendations.

Participants in Business Model Innovation in the Age of AI emerge with an understanding of these applications, plus a framework to help them start applying new knowledge to their own business models. Netessine has been fielding questions from them since the program ended, noting, “Our aim is not just to provide the latest information, but to empower our participants to use it in their organizations. The true measure of success is not in what we teach in the classroom, but in how it catalyzes change and unlocks new opportunities in the real world.”